Question

Jim bob Co. is considering replacing its existing fleet of trucks with new trucks. Estimates for the next three years are as follows:

	Old trucks	New trucks
Average annual sales	$500,000	$520,000
Annual operating costs	100,000	75,000
Original costs of old trucks	100,000	--
Remaining book value of old trucks	10,000	--
List price of new trucks	--	120,000
Remaining life	3 years	--
Expected life	--	3 years
Disposal value now	$10,000	---
Disposal value in 3 years	$ nil	$ nil

Required:

Based strictly on the financial information presented above, should the
company replace the old trucks now? (Ignore time value of money).

Answer 1

	Old trucks	New trucks	Difference
Total Revenue form Trucks	1,500,000	1,560,000	60,000
Less: Total Operating cost	(300,000)	(225,000)	75,000
Cost Of New Truck		(120,000)	(120,000)
Currnt Disposal value of Old Truck		10,000	10,000
Total Benefit	1,200,000	1,225,000	25,000
Company should replace the old truck now